Erp implementation as of january 2013

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  • Different levels of outsourcing Technology Technology/Application Tech/App/Business Process (e.g Payroll) ASP Issues – no customization, bandwidth, security
  • Regulatory requirements like Sarbanes-Oxley, OSHA, etc Technology requirements – enhanced Internet access Economics – ERP vendor pricing and support strategy Globalization Enterprise transparency and Enterprise Philosophy – LEAN, six sigma, etc Maturing Installed Base Implementation changes – single instance, etc.
  • Considerable business process changes – Embedded in ERP are best practices for the sector which the module serves. The vendor wants you to conform to its business processes. If there is a major discrepancy between the practices of the ERP and your organizations, you need to look at reengineering your process to reflect the ERP or not implement an ERP. The question of customization is discussed later. Employee retraining and re-orientation – This is a result of the business process changes. Technical problems - Module incompatibilities and esoteric system commands evident in some of these packages. Customization – it is very difficult and costly to customize your ERP package to follow your business process. It is often discouraged by vendors particularly in light of update to modules. Proprietary – Because of the cost of the system, it will mean a long term commitment to a vendor. There are incompatibilities among ERP software. Cost – The cost of ERP systems typically run in the millions.
  • Employee retention Need change mgmt Changing Jobs – and job descriptions
  • L. Mohan Few people say we tested too much Converting data…you find all the inconsistencies Analyze what you have before you convert it You must plan for the day you get rid of your consultants
  • L. Mohan
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  • L. Mohan In the early 90’s FoxMeyer was lauded for its Marketing software success. They built a slick client/server system that was written up in CIO magazine. IT department got much of the credit
  • Toys R Us
  • L. Mohan In the early 90’s FoxMeyer was lauded for its Marketing software success. They built a slick client/server system that was written up in CIO magazine. IT department got much of the credit
  • L. Mohan In the early 90’s FoxMeyer was lauded for its Marketing software success. They built a slick client/server system that was written up in CIO magazine. IT department got much of the credit
  • L. Mohan Big System Decided to tackle both ERP and Warehouse system simultaneously. Fighting a war on two fronts. CIO Quote: He lost the bet!
  • L. Mohan At time sale, a 5 billion revenue stream valued at 80 million. McKesson buys their competition for pennies on the dollar - less than the cost of the new ERP system they had installed! Bankruptcy Trustee is taking the rare step of suing SAP and Anderson. Still in litigation.
  • L. Mohan At time sale, a 5 billion revenue stream valued at 80 million. McKesson buys their competition for pennies on the dollar - less than the cost of the new ERP system they had installed! Bankruptcy Trustee is taking the rare step of suing SAP and Anderson. Still in litigation.
  • L. Mohan At time sale, a 5 billion revenue stream valued at 80 million. McKesson buys their competition for pennies on the dollar - less than the cost of the new ERP system they had installed! Bankruptcy Trustee is taking the rare step of suing SAP and Anderson. Still in litigation.
  • L. Mohan Other ERP vignettes: Both systems were headed for disaster.
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  • Erp implementation as of january 2013

    1. 1. ERP SystemImplementation 1
    2. 2. Application Service Providers Chapter 10• Outsource ERP• Popular Concept used by SMEs  Unocal pared IT staff 40% in two years  Focus on core competencies, shed cost centers• Many specific functions can be outsourced• Outsourcing benefits  Speed  Organization lacks IT skills• ASP the most popular way to outsource2
    3. 3. ASP Risks Chapter 10• Q. What are the Risks of ASP?• A. Your applications and data are controlled by others• A. Service failures are out of your control• A. Confidentiality failure is a possibility• A. Performance issues are possible3
    4. 4. Key Planning and ImplementationDecisions Chapter 10 • To ERP or not ERP? • What to hold on to? • Customization: Big R or small r? • Big bang or phased implementation? • Single package or best-of-breed? • Which ERP package? • What Enterprise?4
    5. 5. ERP or not to ERP? Chapter 10 • Business Case Rationale  Technology o Disparate Systems o Poor quality existing systems o Difficult to integrate acquisitions  Process o Personnel and IT cost reductions o Productivity improvements o Closing the financial cycle5
    6. 6. ERP or not to ERP? Chapter 10• Business Case Rationale (cont.)  Strategic o Able to implement new strategies not supported by the current software (eCommerce and portals) o Improving customer service and satisfaction  Competitive o “Competition has it” o Improved customer response6
    7. 7. W to hold on to? hat Chapter 10 • Outsourcing  Continue to focus on core mission  Avoiding a huge financial commitment  Minimize impact on IT department • In-House  Better match between the software and the business  Applications are optimized for the organization  Security7
    8. 8. Big Bang orPhased Implementation? Chapter 10 • Big Bang (All modules at all locations implemented at the same time)  No need for temporary interfaces  Limited need to maintain legacy software  Cross-module functionality  No going back  Lower cost if no surprises8
    9. 9. Big Bang orPhased Implementation? Chapter 10 • Phased (Modules implemented one or a group at a time, often at a single location at a time)  Smoothing of resource requirements  Able to focus on a particular module  Legacy system fall back  Reduced risk  Knowledge gained with each phase  Used to demonstrate a working system9
    10. 10. Other Implementation Approaches Chapter 10 • Wave – different waves of change to a different business unit or region • Parallel – both ERP and existing system run together for a period of time  Basis of comparison  Existing system serves as backup  Requires more computing and human resources – more costly  Existing system may not be properly maintained during the period  Reengineering not supported by existing systems10
    11. 11. ERP Implementation Life Cycle Chapter 10• Phases of ERP Implementation Life Cycle  Pre Evaluation Screening  Package Evaluation  Project Planning Phase  Gap Analysis  Implementation Training11
    12. 12. ERP Implementation Life Cycle Chapter 10• Phases of ERP Implementation Life Cycle (Contd.)  Testing  Going Live  End User Training  Post Implementation12
    13. 13. Pre Evaluation Screening Chapter 10• Hundreds of ERP Vendors• Limit the No. of packages to be evaluated to less than five• Thorough evaluation of a small no. of packages• No superficial analysis of dozens of packages13
    14. 14. Pre Evaluation Screening (Contd.) Chapter 10• Zero in on a few best packages by  Looking at product Literature  Getting help from External Consultants  Package used by similar companies• Vendor’s standing in the Market• Local Implementation and post Implementation support14
    15. 15. Package Evaluation Chapter 10• Do it right the first time  Huge Investment  Not easy to switch to another one, once purchased one package  A very little room for error• None of them are perfect• Objective should be to find the best fit• Develop selection criteria15
    16. 16. Package Evaluation (Contd.) Chapter 10• Functional fit• Integration between various modules• Flexibility & Scalability• Complexity• User friendliness• Quick implementation• Support Multi Sites16
    17. 17. Package Evaluation (Contd.) Chapter 10• Technology  Client / Sever capabilities  Database Independence  Security• Availability of regular upgrades• Amount of customization required• Local support infrastructure17
    18. 18. Package Evaluation (Contd.) Chapter 10• Availability of reference sites• Total cost of ownership of an ERP Solution  Cost of licenses  Cost of Training  Cost of Implementation  Customization cost  Hardware cost  Maintenance cost  Infrastructure Cost18
    19. 19. Package Evaluation (Contd.) Chapter 10• Form a Package selection committee  People from various departments ( Functional Experts )  Top Management ( CIO, COO etc.)  Consultants ( Package Experts )  Package selected by the committee will have company wide acceptance19
    20. 20. Project Planning Phase Chapter 10• Time Schedules• Deadlines• Development of Project Plan• Roles & Responsibilities• Project Manager selection & appointment• Selection of Implementation Team Members20
    21. 21. Project Planning Phase (Contd.) Chapter 10• Task allocation amongst team members• When to begin the project, how to do it & when it is supposed to be completed• Contingency plan• How to Monitor the progress• Control measures to be taken• Corrective action plan, in case something goes wrong21
    22. 22. Project Planning Phase (Contd.) Chapter 10• Implementation Team will meet periodically• Review the progress• Chart the future course of action22
    23. 23. GAP Analysis Chapter 10• Best Fit  Meets 80% of Functional Requirements• Solutions for the GAP  Alter business processes to fit the package  Pinning hopes on Upgrades  Third party Interface  Write additional programs  Altering ERP Source Code ( Most expensive )23
    24. 24. Implementation Team Training Chapter 10• How to Implement the package• Running the system• Consultants will Implement at the first site• Selection of the employees for training  People with the right attitude  People who are willing to change, learn new things, have good functional knowledge and are not afraid of technology24
    25. 25. Testing Chapter 10• Test for extreme case scenarios  System Overloads  Multiple users logging on at the same time with the same query  User entering invalid data  Hackers trying to access restricted areas• Design the test cases to find  Weak links in the system25
    26. 26. End User Training Chapter 10• Actual user will be given training on how to use the system• This should be done before going Live• Identify the employees – the users of the new system• There will be resistance to change• Most Implementations fail because of lack of user training26
    27. 27. Going Live Chapter 10• Data Cleansing and Conversion• Databases should be up & running• Prototype should be fully configured & tested & should be ready to go operational• New system is Live when the old system is removed & only new system is used for doing business27
    28. 28. Maintenance of an ERP Chapter 10• System bugs• User assistance• Changes to system• Manage different input and output requirements• Documentation• Training• Maintaining and updating software• Budgeting for Maintenance28
    29. 29. Difficulty in implementation Chapter 10• Very difficult• Extremely costly and time intensive• Typical: over $10,000,000 and over a year to implement• Company may implement only certain modules of entire ERP system• You will need an outside consultant for first site Implementation
    30. 30. Common Pitfalls Chapter 10• Do not adequately benchmark current state• Did not plan for major transformation• Did not have executive sponsorship• Did not adequately map out goals and objectives• Highly customized systems to look like old MRP systems
    31. 31. Key Issues - Process Chapter 10 • Do it OUR way  Considerable business process changes for the organization • OK, don’t do it our way  Customization: cost, maintenance (upgrades), compatibility issues31
    32. 32. Key Issues - People Chapter 10  Employee resistance  Job Changes o Retraining and re-orientation  Likely more data collection screens than in legacy system  Loss of ERP veterans  Security32
    33. 33. Key Issues - Technology Chapter 10• Data migration from legacy systems• Lack of interoperability among different vendor products• Maintenance33
    34. 34. Key Issues - Financial Chapter 10• Cost  Range = $400,000 - $300 million  TCO = $53,320 per user (Meta Group)  Hidden costs o Training o Integration and Testing o Data Conversion o Data Analysis o Consulting Fees o Turnover34
    35. 35. Definition & Measurement ofSuccess Chapter 10• Success depends on the Point of View  Point of view of Project Managers & Consultants – Completion on time & within Budget  Adopters view – Smooth transition to stable operations with the new system, Achieving intended business improvements like Inventory Reductions, gaining improved decision support capabilities etc.35
    36. 36. Definition & Measurement ofSuccess Chapter 10• Second issue is timings of Measurement  Success in the short run & long run  Instances when Successfully installed ERP systems were terminated when the companies were merged with another  Successes measured at three different points in time in ERP experience cycle  Three distinct phases36
    37. 37. Definition & Measurement ofSuccess Chapter 10• Project Phase  During this phase ERP software is configured & rolled out• Shake down Phase  During this phase the company makes transition from “Go Live” to “Normal Operations”• Onward & Upward Phase  During this Phase the company captures the majority of benefits from ERP & plans for next steps for technology implementation & business improvements37
    38. 38. Definition & Measurement ofSuccess Chapter 10• Success Metrics for different Phases  Project Phase o Project Cost Vs. Budget o Project completion in time relative to schedule o Completed & installed system functionality relative to the scope  Shakedown Phase o Short term changes occurring after system “Go Live”38
    39. 39. Definition & Measurement ofSuccess Chapter 10• Success Metrics for different Phases  Shakedown Phase o Length of time before KPI achieve “Normal” or “Expected Levels” o Short term impact on Organization’s adopters, suppliers and customers such as average time on hold when placing a telephone order39
    40. 40. Definition & Measurement ofSuccess Chapter 10• Success Metrics for different Phases  Onward & Upward Phase o Achievement of Business results such as reduced operational cost, reduced inventory carrying costs o On going improvements in business results o Ease in adopting new ERP releases, other new technologies, improved business practices, improved decision making etc. after ERP system has achieved stable operations40
    41. 41. The 12 Cardinal Sins of ERPImplementation Chapter 10• Lack of Top Management Commitment  Proper commitment of time and resources are required for a successful implementation• Inadequate Requirement Definition  60% of ERP failures are for this reason  This will also lead to poor package selection• Poor ERP Package Selection  Inadequate functional requirements41
    42. 42. The 12 Cardinal Sins of ERPImplementation Chapter 10• Poor ERP Package Selection  Inadequate and improper evaluation of the package• Inadequate Resources  Skills availability within the company  Working full time on ERP Implementation42
    43. 43. The 12 Cardinal Sins of ERPImplementation Chapter 10• Resistance to change / Lack of Buy-In  Caused by failure to build a case for change  Lack of involvement of the users affected by the change  Inadequate communication  Lack of visible top management support and commitment43
    44. 44. The 12 Cardinal Sins of ERPImplementation Chapter 10• Miscalculation of time and effort• Misfit of Application software with Business Processes• Unrealistic expectation of Benefits and ROI  Software providers and consultants are notorious for overstating benefits in terms of ROI and understating the total cost of the project44
    45. 45. The 12 Cardinal Sins of ERPImplementation Chapter 10• Inadequate Training  Training needs are underestimated  ERP related training is crucial  Employees must learn new software interfaces and business processes which is going to affect the operation of the entire enterprise• Poor Project design and Management  Short cutting critical events in the project plan, such as documentation time, redefining and integrating processes or testing before going live45
    46. 46. The 12 Cardinal Sins of ERPImplementation Chapter 10• Poor Communications  Poor project communications beginning with announcing the reasons for the ERP project, continuing advise on the progress and the importance of ERP implementation to the company  Communication is a vital part of managing the change which ERP will bring about in the company• Ill advised cost cutting  Simultaneous implementation at multiple sites  Compressing the schedule to save costs46
    47. 47. Adopters problems with ERP Chapter 10• Project Phase Problems  Software Modifications o Strongly recommended to avoid modifying the software & live with existing functionality o Difficulty in getting modifications to work well o Getting well tested & working modifications in a timely manner is a problem o When the user understands the software better, they discover ways to implement needed capabilities without modifications47
    48. 48. Adopters problems with ERP Chapter 10• Project Phase Problems  Even though ERP systems are said to be comprehensive, need for retaining some legacy systems & third party specialized software cannot be totally ruled out  Interfacing these systems with ERP is both challenging & expensive48
    49. 49. Adopters problems with ERP Chapter 10• Project Phase Problems  Problems with product & implementation consultants o Coordinating the efforts of various consultants is a challenge ( H/W Vendor, Software Vendor, telecom Vendor, ERP Vendor, Implementation Consultant )  Turnover of Project Personnel o Losing key IT specialists & user representatives working on the project while the project is going on49
    50. 50. Adopters problems with ERP Chapter 10• Project Phase Problems  Turnover of Project Personnel o Losing experienced people after the project is complete• Shakedown Phase Problems  Companies experienced negative outcomes during this phase o ERP system performance problems o Data entry errors50
    51. 51. Adopters problems with ERP Chapter 10• Shakedown Phase Problems  Companies experienced negative outcomes during this phase o Increased staffing required to cope with slowdown & errors o Negative impact on customers & suppliers from an inability to answer their queries & delayed shipments o Inadequate management reporting51
    52. 52. Adopters problems with ERP Chapter 10• Shakedown Phase Problems  These were caused by problems occurred during Project Phase which were not recognized as problems or were not resolved when occurred  The most important problems that occurred during Project Phase were o Inappropriately cutting project scope when there are missing key milestones52
    53. 53. Adopters problems with ERP Chapter 10• Shakedown Phase Problems  Cutting end user training o Underestimating the need for training  Inadequate Testing o Testing of cross module integration o Testing of interfaces with legacy systems o Testing of modifications carried out by external vendors o Testing unusual business scenarios53
    54. 54. Adopters problems with ERP Chapter 10• Shakedown Phase Problems  Underestimating data quality problems & reporting needs o Retaining legacy data for many years ( Regulatory compliance & Product servicing for many years ) o In integrated ERP systems, data must be clean o Users will be disappointed if their reporting needs are not met54
    55. 55. Adopters problems with ERP Chapter 10• Shakedown Phase Problems  Reveals unresolved or unrecognized problems of Project Phase  Many of these problems can be avoided by giving adequate attention during Project Phase to : o Cross functional configuration & testing of software o End user training o Data conversion & management of legacy data55
    56. 56. Adopters problems with ERP Chapter 10• Shakedown Phase Problems o Reporting needs o Scenarios for recovering from data input errors• Onward & Upward phase problems  Fragile human capital o Losing ERP knowledgeable IT specialists & end users o Difficulty replacing them56
    57. 57. Adopters problems with ERP Chapter 10• Onward & Upward phase problems  Migration Problems o Software modifications made earlier convert poorly during implementation of later releases o Some organizations vowed never again to modify ERP software but to make necessary changes to their business processes57
    58. 58. Critical success factors in ERPimplementation projectsFourteen CSFs were identified by majority of thecompanies:
    59. 59. Top management support and involvementTop management support is critical becausetop managers have to make fast and effectivedecisions,Top managers have to resolve conflicts,They have to bring everyone to the samethinking to promote company-wide acceptanceof the project, andbuild co-operation among the diverse groups inthe organization.
    60. 60. Clear goals, objectives and scopeClearly defined business and strategicobjectivesClear goals and objectives should be specificand operational and have to indicate the generaldirections of the project.They should also provide a clear link betweenbusiness goals and IS strategy.Well-defined objectives help to keep the projectconstantly focused, and are essential foranalyzing and measuring success.
    61. 61. Project team competence and organizationSelecting and motivating the right employees toparticipate in implementation processes is criticalfor the implementation’s success.Teams must consist of the right mix of businessanalysts, technical experts, and users from withinthe organization and consultants from externalcompanies, chosen for their skills, pastaccomplishments, reputations, and flexibility.
    62. 62. User training and educationA lack of user training and understanding of howERP systems work appears to be major reasonfor many problems and failures in ERPimplementation.If the employees do not understand how asystem works, they will invent their ownprocesses using the parts of the system they areable to manipulate.The full benefits of ERP is not realized until endusers are using the new system properly.
    63. 63. Business process reengineeringERP implementation is a matter of transformingbusiness practices.So implementing an ERP system involvesreengineering the existing business processes tofit best business practices.
    64. 64. Change managementERP brings in lot of changes in processes,introduces many checks and controls etc.These changes might cause resistance from theusersThese changes have to be managed properlyMany ERP implementations fail to achieveexpected benefits in part because companiesunderestimate the effort involved in changemanagement.
    65. 65. Effective communicationThe importance of communication acrossdifferent business functions and departments iswell known in the information technologyimplementationCommunication has a significant impact on theprocess by minimizing possible user resistance.Communication has to cover the scope,objectives, and tasks of an ERP implementationproject.Effective communication is required in projectteams and within the organization (i.e. weeklyteam meetings, postings on the company
    66. 66. User involvementCooperation and involvement of all people inthe organization are essential.Involving users in defining organizationalinformation system needs, selection of the rightERP solution and in BPR if necessary, candecrease their resistance to ERP systems. Users often perceive their role in ERPimplementation as central in their judgmentabout new system.
    67. 67. Data analysis and conversionThe quality of pre-existing data and informationsystems is very important factor in successfulERP implementation.If problems with data are not solved in oldlegacy systems they will hardly be solved duringERP implementation and therefore the quality ofimplemented system will be questionable.Data problems could even rise becausemodules in ERP solution are interlinked.
    68. 68. ConsultantsThe success of a project depends strongly onthe capabilities of the consultants because theconsultants are the only one with in-depthknowledge of the software.Consultants provide a very valuable service byfilling gaps, providing expertise, and thinking out-the-box.They are specialized and can usually workfaster and more efficiently than others involved inthe implementation process.
    69. 69. Project management ERP projects are huge, complex, and risky, so effective project management is crucial. Approximately 90% of ERP implementations are late or over-budget, which may be due to poor cost and schedule estimations or changes in project scope.
    70. 70. Project championProject champions or sponsors are individualswho have a clear understanding of what is goingon; they are very critical to implementationsuccess.Champions ideally should have experience inprevious implementation efforts to manageconflicts that arise before and afterimplementation.Project champions play a critical role in theacceptance of the technology and he/she isusually at senior management level so they havethe authority to make substantial organizational
    71. 71. Architecture choice (package selection)All ERP packages have limited capabilities.Some packages are more suited for largercompanies while others fit smaller firms better.Some packages have become a “de facto”standard in certain industry.Some have a stronger presence in certain partsof the world.To increase the probability of success,management must choose software that mostclosely fits its requirements.
    72. 72. Minimal customizationMost companies significantly underestimate theeffort required for code modification.Vendor’s code should be used as much aspossible, even if this means sacrificingfunctionality, so upgrades from release to releasecan be done easily.Therefore, every modification request should becarefully evaluated and approved, or rejected,after considering all the options.
    73. 73. Management issues of ERPimplementation projects – reasonsfor ERPAnswers to the question “ What are the reasonsof a company to decide to implement ERPsolution” were:  better access to data,  modernization of existing business processes with ERP solution,  single data entry,  incompatibility of previous information systems,  integrity of a solution, demand of owners,  better reports,  adaptability and flexibility of ERP solution
    74. 74. Management issues of ERP implementationprojects – why particular ERP solution waschosenAnswers to the question “Why a particular ERPsolution has been chosen” were:  integrity of a selected ERP solution,  efficiency and stability operation of an ERP solution,  support of an ERP vendor,  cost and price of an ERP solution,  and requirement of an owner or other business partners (customers, vendors etc.).
    75. 75. Management issues of ERP implementationprojects – was ERP implemented accordingto planed time33.3% of implementations lasted longer thanthey have been planned and the reasons for thatwere:  changing scope of implementation,  weak knowledge about functionality of ERP solutions,  passive collaboration within project team during the analyze phase,  key users have been overloaded with daily tasks so they do not have time to participate in the
    76. 76. Management issues of ERP implementationprojects – changes in ERP functionalityduring the implementationAnswers to the question “Whether scope ofexpected functionality has changed during theimplementation” were:  14.6 percent answered small decrease according to planned functionality,  36.6 percent answered no changes – planned functionality implemented,  29.3 percent answered small increase according to planned functionality  19.5 percent answered big increase according to
    77. 77. Major reasons reported for changing the functionality have been:  “during an implementation we found out new functionalities of the ERP solution for which it would be foolish to release it out of the project”;  “after analyzing and defining business processes key users understand importance of the ERP solution better and that was leading to the increase in scope”,  “bad analysis and defining processes, and bad cooperation with top management”.
    78. 78. Management issues of ERP implementationprojects – changes in costsAnswers to the question “Whether the costs ofimplementation changed according to plannedcosts” were:  nobody answered much smaller than planned.  4.9 percent have answered a little smaller than planned,  26.8 percent have answered the same as planned,  46.3 percent have answered a little bigger than planned  22 percent have chosen much bigger than has been planned.
    79. 79. Major reasons reported for raising of costs were:  bigger scope of functionality than planned,  more consultants’ hours,  bigger number of interfaces with other information systems as planned,  persistence at adaptation of ERP solutions to existent processes and procedures.
    80. 80. Management issues of ERP implementationprojects – major unexpected problemsduring the implementationTo the question “If any big problems have occurred during an implementation process”:  31.7 percent have answered yes and  68.3 percent have answered no.
    81. 81. Most often problems reported were:  user resistance for change,  bad training and bad user manuals,  unsuitable consultants, bad computer literacy,  poorly included middle management,  the solution has not been tested enough by users,  bad defining of business processes etc.
    82. 82. ERP Implementation: A Real Pain Chapter 10 More ways to fail than to succeed Very expensive Slow to install Medium size projects in tens of millions and require years of tweaking Support Industry surrounding ERP:  costly services and consultants  can be 10 times the cost of software  Consultant’s “Full Employment Act” !82
    83. 83. Hidden Costs Chapter 10ERP implementation costs fall in the range of $3 to$10 per dollar spent on the software itself - Meta Group1. Training2. Integration3. Testing4. Data Conversion5. Data Analysis6. Getting rid of your consultants83
    84. 84. Training- Consistently Underestimated Chapter 10 Because…. Workers have to learn new processes Not just a new software interface e.g., A receiving clerk at the plant’s loading dock now becomes an accountant. Because the clerk is keying new inventory directly into a live system, mistakes have an immediate impact on the books. And the plant’s number crunchers can no longer simply look at their data in batches, now they need to be able to pinpoint the origin of each data entry to verify its accuracy.84
    85. 85. ERP is NOTJust About Technology Implementation Chapter 10• It requires significant change management o the most elusive budget item• Training costs: 10% - 15% of total budget o do not skimp on training; otherwise, pay more later• One approach to control price tag o train the trainers 85
    86. 86. Integration-- Is NOT Easy Chapter 10 Links have to be built between ERP and other corporate software on a case-by-case basis Monsanto has add-on applications for logistics, tax, production planning and bar coding. Integrating them with SAP has consumed more time and money than estimated AND… If the ERP’s core code has to be modified to fit the business process, costs will skyrocket. 86
    87. 87. Testing Must be Process-Oriented Chapter 10DO NOT…… Use DUMMY DATA… And move it from one application toanother Run a real purchase-order through the system, from order entry to shipping and receipt of the payment -- the whole “order-to-cash” cycle - preferably with the employees that will eventually do the jobs. 87
    88. 88. Fox-Meyer’s Mistake Chapter 10Company received about 500,000 orders daily fromthousands of pharmacies, each of which orderedhundreds of items.SAP could only handle a few thousand items a day No way to test in advance…ran some simulations, but not with the level of data we have in an operating environment. 88
    89. 89. Data ConversionIs NOT 1-2-3 Chapter 10Because….• Most companies in denial about quality of legacy data. Hence, underestimate cost of moving data to new ERP home.• Even clean data may need some overhaul to match process modifications necessitated by the ERP implementation• One alternative: outsource data conversion  claim to reduce costs by 75%89
    90. 90. Data Analysis- An Additional Cost Chapter 10Reports in ERP package will NOT meet managementinformation needs because …… ERP data has to be combined with external and softdata such as goals, budgets, etc.… Management reports should be customized to theorganization needs and cultureCost of data analysis is often overlooked in projectbudget because of misconception that ERP packageprovides all the analysis users need90
    91. 91. Consulting Fees Can Run W ild Chapter 10 IF… Users fail to plan for disengagement Hence…• Identify objectives for consulting partners when training internal staff• Include metrics in contract e.g. A specific number of staff should be able to pass a project management leadership test - similar to what Big 5 consultants have to pass to lead an ERP engagement 91
    92. 92. How to Uncover Hidden Costs Upfront Chapter 10• Assemble cross-functional teams.• Include both senior managers. AND lower-level end users who will have daily contact with the ERP systems and provide level of detail.• Systematically question and challenge each other’s assumptions and estimates• Examine in depth the six components of hidden costs.• Cost of ERP software is only a SMALL SLICE of the total project outlay. 92
    93. 93. The Promise of ERP Chapter 10 Promise: Change the way companies work by integrating the back- office processes into one smoothly functioning whole. Problem: Years to implement Hundreds of millions of $ AND Inward-looking Focus: Efficiency of the Enterprise in isolation 93
    94. 94. Case Studies Chapter 10 - Failure Stories94
    95. 95. Horror Stories Chapter 10 • Whirlpool: ERP implementation crippled its shipping system, leaving appliances stacked on loading docks and not delivered to paying customers for a full eight weeks. • Hershey Foods: A 19 percent drop in earnings was caused by an incompetent ERP implementation that wreaked distribution havoc during one of its most profitable seasons: Halloween. • Volkswagen: Significant delays in parts shipments causing product inventories to build up to costly levels. “Ha lf o f the is s ue s in ERP d is a s te rs a re no t te c hnic a l but a re p e o p le re la te d a nd c ulture re la te d . ”95
    96. 96. The Reality :Fox-Meyer Case Example Chapter 10 - Once a $5 billion drug distributor - 4th largest in the US - Tight Margin Business - CIO Magazine praised them in 1995 for new client/ server initiatives in 199396
    97. 97. Fox-Meyer’s ERP Project Chapter 10- Launched ERP Project in 1993, a hot new idea at the time- SAP’s R/ had a track record only in the 3 manufacturing industry- Goal: First mover advantage in distribution industry- “W are betting our company on this” e - CIO Robert Brown97
    98. 98. Fox-Meyer - The System Chapter 10 - Cost – $100 million - Implemented SAP’s ERP and Pinnacle’s Computerized Warehouse Systems at the same time - Big problems surfaced in late 1994 e.g.: R/3 miscounted inventory, which in turn screwed up customer orders - Outright crashes were routine98
    99. 99. Fox-Meyer – W Happened? hat Chapter 10- R/3 could not handle the volume - Could process just 10,000 invoice lines per night compared to 420,000 in the old Unisys system - Software usable only in 6 of 23 warehouses - Had to revert to old Unisys system- Data conversion bungled by implementation consultants - Used incorrect product codes - Faulty interfaces between old and new systems- State of the art warehouse opened late - Incorrect orders cost millions in excess shipments 99
    100. 100. Fox-Meyer – The Blame Game Chapter 10- Fox Meyer Management: - Claimed vendors oversold capabilities - Consultants were neophytes - “Installation guinea pig – far worse than original system”- Pinnacle COO – “not a failure of automation – It was a management failure”- SAP – “users who install R/3 are usually changing basic business processes at the same time – this is where most of the pains and challenges of implementation come from”- Vendors claim project was completed according to their agreement 100
    101. 101. Fox-Meyer - Aftermath Chapter 10- Filed for bankruptcy in 1996- Purchased by a major competitor for $80M- August 1998 - Bankruptcy trustee for Fox-Meyer sues Vendors for $500 million each. 101
    102. 102. And Others... Chapter 10- Allied Waste Industries  Pulled the plug on a $130 million SAP R/3 system- Waste Management Inc.  Cancelled SAP installation after spending $45 million of a $250 million project. 102
    103. 103. A Notorious Disaster Hershey Foods – October 1999 Chapter 10– IBM-led installation and integration of software from 3 vendors: SAP, Manugistics (planning applications) and Siebel (pricing promotions)– Embarked on the project in 1996 . . . Partly to satisfy retailers who were demanding fine-tuning of deliveries to keep their inventories and costs down . . . Also faced Y2K problems in old system– Investment : $ 112 M, 5000 PCs.– “To be used by 1200-person salesforce and other departments to handle every step from order placement to final delivery . . . Touches nearly every operation; tracking raw ingredients, scheduling production, measuring the effectiveness of promotional campaigns, setting prices, and even deciding how products oughtMohan stacked inside trucks” L. to be - 103
    104. 104. Why “Hershey’s Biggest Dud Is Its New Computer System” Chapter 101. “Scope – Creep” in Defining Objectives of the Project – Had to select 3 different vendors to meet project objectives2. Big-Bang Implementation Approach – Replaced all legacy systems at once despite complexity of integrating 3 packages; Not a phased approach – one module or unit at a time – Successful Implementation in Canada; but, it is a tiny fraction of the size of the U.S. business3. Initial Time Estimate - 4 years – Squeezed into 30 months104
    105. 105. Why “Hershey’s Biggest Dud Is Its New Computer System” Chapter 104. Expected to go live in April ‘99 - a slow period – Date pushed to July, when Halloween orders begin to come in – 40% of candy sales between Oct. & Dec; Halloween is the single biggest sales day, followed by Christmas5. No Contingency Plan – Could not backpedal to old logistics systems – they had been demolished to make way for new system – Built up 8 days of inventory as a cushion against computer glitches - by early August, 15 days behind in meeting orders105
    106. 106. The Implementation Failure Candy “everywhere” but NOT in the stores for Halloween Chapter 10 Problem : Getting customer orders into the system and transmitting the details to warehouses for fulfillment Rivals, Mars and Nestle, benefiting without much effort because : “If you don’t have my toothpaste, I’m walking out (of the store). But for a chocolate bar (and that too for Halloween), I’ll pick another brand.” - Shelf-space is hard to win back. Hershey sales rep calling Dallas-based 7-Eleven chain candy- category manager weekly to ask what 7-Eleven has received because Hershey itself can’t tell what it was “They’ve missed Halloween; problems could persist through Christmas and may be even Valentine’s Day & Easter”. Bottom-Line : $ 150 M loss in sales in quarter after system went live, 29% higher product inventories, compared to year L. Mohan before 106
    107. 107. Post-Mortem of Hershey Failure Chapter 10 #1 Trying To Do Too Much At Once #2 Unentered Data in SAP #3 No Leadership107
    108. 108. Integrating SAP With Manugistics - More Complex Than Anticipated Chapter 10 — Hershey had used Manugistics supply chain planning software for years – but it was the mainframe version — The software had to be changed to a client-server version that had to be configured as a bolt-on to SAP — Not enough time for testing, with the rush to implement by the Y2K deadline108
    109. 109. The Data Problem - How Could Hershey Lose Track of Inventory Chapter 10 Hershey’s management process - Very good at crisis management - Devised informal mechanisms for dealing with tremendous buildup of inventory to meet peak holiday sales - “They would put candy everywhere they could to store it… they were not used to having to tell the computer about that.” “Surge storage” capacity created in warehouse space rented on a temporary basis – even spare rooms within factory buildings - These locations were not recorded as storage points in SAP 109
    110. 110. The Data Problem- How Could Hershey Lose Track of Inventory Chapter 10 SAP requires a lot of discipline - Found that significant amount of inventory was not where the system said it was - To fulfill a customer order, SAP checks data of available inventory in the system Breakdown between Logistics Group and IT Group to identify this data in advance 110
    111. 111. Poor Management Oversight Chapter 10 No CIO - Head of IT only a VP, a couple of levels down Different parts of the business pulling in different directions - No one at the top to pull these demands together to guide the creation of a system that will work for the whole system - “You get 100 little committees with no oversight” No high-powered steering committee for project oversight 111
    112. 112. Lessons Learned AND Applied by Hershey - The IT System for a New Distribution Center Chapter 10Lesson #1: Go SlowlyHershey took the time and resources to thoroughly test the computersystem.“Testing included putting bar codes on empty pallets and going through themotions of loading them onto trucks so that any kinks would be worked outbefore the distribution center opened for business”.Lesson #2: Data is KingFixing data problems became a top priority for the top management ofdistribution centersLesson #3: Management Oversight Matters Top management was determined that nothing go wrong“Wound up with a very high-powered steering committee… we had the CEOhimself involved.” 112 L. Mohan
    113. 113. No End In Sight . . . Goodyear – November 2003 Chapter 10Hits $ 100M Bump in the ERP SystemWhat caused a major accounting blowout ?– SAP installed in 1999 to run core accounting functions Had to be linked to existing systems for intercompany billing which handled internal transactions on the purchases of raw materials made centrally for use in global operations– Consulting help from PwC and J. D. Power– Discovered “financial errors” Need to identify whether “the errors were in the ERP or in the internal billing systems so that fixes can be made and accounting procedures improved”– System Fallout Had to restate financial results from 1998 to first half of 2003 - > $ 100M in profits wiped out ! L. Mohan 113

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